Tokyo's inflation accelerated in December 2024, with the headline consumer price index (CPI) rising 3.4%, up from 3.1% in November, according to data from Statistics Japan on Friday.

The figure, marking the highest inflation rate since April 2023, comes on the heels of the Bank of Japan's (BoJ) recent decision to raise interest rates to 0.5%, the highest since the 2008 global financial crisis, though still low compared to other major economies.

The core CPI, which excludes volatile fresh food prices, rose 2.5% year-on-year, a slight increase from November's 2.4%.

Food prices, excluding perishables, jumped 4.7%, accelerating from a 4% increase in November. Rent prices grew 0.6%, maintaining a steady upward trend but slowing from the 0.7% rise seen in October and November.

The data follows the BoJ's recent monetary policy move, which, while largely priced in by markets, underscored the central bank's expectation of further rate hikes sooner than expected.

In its quarterly outlook, the BoJ projected inflation to stay above 2% through fiscal year 2026. However, while Governor Kazuo Ueda's comments on the timing and terminal rate were vague, his reaffirmation that real interest rates remain negative suggests that the BoJ still sees accommodative monetary conditions.

ING Research noted that while the rate hike itself was anticipated, the BoJ's more hawkish outlook signals that the market should brace for additional tightening in the coming months, with inflation projections continuing to shape the bank's policy stance.